Theme 2: Foundations of organizational structure

RL 0928 organizational change and human resources development Ricardo Chiva

Defining Organizational Structure

Organizational Structure
The formal arrangement of jobs within an organization. A process involving decisions about six key elements:
1. 2. 3. 4. 5. 6. Work specialization Departmentalization Chain of command Span of control Centralization and decentralization Formalization

Some Purposes of Organizing

Divides work to be done into specific jobs and departments. Assigns tasks and responsibilities associated with individual jobs. Coordinates diverse organizational tasks.

Clusters jobs into units.

Establishes relationships among individuals, groups, and departments.

Establishes formal lines of authority.

Allocates and deploys organizational resources.

Organizational Structure
(1)Work Specialization
The degree to which tasks in the organization are divided into separate jobs with each step completed by a different person.
Overspecialization can result in human diseconomies from boredom, fatigue, stress, poor quality, increased absenteeism, and higher turnover.

 In a simple organization, differentiation is low because the division of labor is low

Individuals typically perform all organizational tasks

In a complex organization, differentiation is high because the division of labor is high

ORGANIZATIONAL ROLES Set of task-related behaviors required of a person by his or her position in an organization As the division of labor increases, managers specialize in some roles and hire people to specialize in others Specialization allows people to develop their individual abilities and knowledge within their specific role

(2)Departmentalization by Type
Functional
Grouping jobs by functions performed

Process
Grouping jobs on the basis of product or customer flow

Product
Grouping jobs by product line

Customer
Grouping jobs by type of customer and needs

Geographic
Grouping jobs on the basis of territory or geography

Functional Departmentalization

Advantages

Efficiencies from putting together similar specialties and people with common skills, knowledge, and orientations
Coordination within functional area In-depth specialization Disadvantages

Poor communication across functional areas

Limited view of organizational goals

Geographical Departmentalization

Advantages More effective and efficient handling of specific regional issues that arise Serve needs of unique geographic markets better Disadvantages Duplication of functions Can feel isolated from other organizational areas

Product Departmentalization

+ + +

Allows specialization in particular products and services Managers can become experts in their industry Closer to customers Duplication of functions Limited view of organizational goals

Process Departmentalization

+ More efficient flow of work activities Can only be used with certain types of products

Customer Departmentalization

+ Customers needs and problems can be met by specialists - Duplication of functions

- Limited view of organizational goals

(3) Chain of Command or Hierarchy

The continuous line of authority that extends from upper levels of an organization to the lowest levels of the organization and clarifies who reports to who. a classification of people according to their relative authority and rank

Vertical differentiation: the way an

organization designs its hierarchy of authority and creates reporting relationships to link organizational roles and subunits
Establishes the distribution authority between levels

Horizontal differentiation: the way an

organization groups organizational tasks into roles and roles into subunits (functions and divisions)
Roles differentiated according to their main task responsibilities

 Authority
The rights inherent in a managerial position to tell people what to do and to expect them to do it.

Responsibility
The obligation or expectation to perform.

Unity of Command
The concept that a person should have one boss and should report only to that person.

(4) Span of Control

The number of employees who can be effectively and efficiently supervised by a manager. Width of span is affected by:
Skills and abilities of the manager Employee characteristics Characteristics of the work being done Similarity of tasks Complexity of tasks Physical proximity of subordinates Standardization of tasks

Contrasting Spans of Control

(5)Centralization & Decentralization Centralization

The degree to which decision-making is concentrated at a single point in the organizations.

Decentralization

Organizations in which top managers make all the decisions and lower-level employees simply carry out those orders.

Employee Empowerment

Organizations in which decision-making is pushed down to the managers who are closest to the action. Increasing the decision-making,

Factors that Influence the Amount of Centralization

More Centralization
Environment is stable. Lower-level managers are not as capable or experienced at making decisions as upper-level managers. Lower-level managers do not want to have a say in decisions. Decisions are significant. Organization is facing a crisis or the risk of company failure. Company is large.

Factors that Influence the Amount of Decentralization

More Decentralization
Environment is complex, uncertain. Lower-level managers are capable and experienced at making decisions. Lower-level managers want a voice in decisions. Decisions are relatively minor. Corporate culture is open to allowing managers to have a say in what happens. Company is geographically dispersed.

(6) Formalization

The degree to which jobs within the organization are standardized and the extent to which employee behavior is guided by rules and procedures.
Highly formalized jobs offer little discretion over what is to be done. Low formalization means fewer constraints on how employees do their work.

Mutual adjustment: the process through which people use their judgment rather than standardized rules to address problems, guide decision making, and promote coordination

Types of organization, according to their structure - Mechanistic vs organic - Tall vs Flat

Mechanistic versus Organic Organization

Mechanistic Organization
A rigid and tightly controlled structure High specialization Rigid departmentalization Narrow spans of control High formalization Limited information network (downward) Low decision participation

Organic Organization
Highly flexible and adaptable structure Non-standardized jobs Fluid team-based structure Little direct supervision Minimal formal rules Open communication network Empowered employees

 Mechanistic structures: designed to induce people to behave in predictable, accountable ways

Decision-making authority is centralized Subordinates are closely supervised Information flows mainly in a vertical direction along a clearly defined path Hierarchy principal integrating mechanism Tasks and roles coordinated primarily through standardization and formal written rules Best suited to organizations that face stable, unchanging environments

 Organic structures: structures that promote flexibility, so people initiate change and can adapt quickly to changing conditions
Decision making distributed throughout the hierarchy Coordination is achieved through mutual adjustments Status conferred by ability to provide creative leadership Encourages innovative behavior Suited to dynamic environments

Size and height limitations

Tall organization: an organization in which the hierarchy has many levels relative to the size of the organization Flat organization: an organization that has few levels in its hierarchy relative to its size

Structural Contingency Factors

Structural decisions are influenced by:
Overall strategy of the organization
Size of the organization
Organizational structure follows strategy. Firms change from organic to mechanistic organizations as they grow in size. Firms adapt their structure to the technology they use. Dynamic environments require organic structures; mechanistic structures need stable environments.

Technology use by the organization

Degree of environmental uncertainty

 Strategy Frameworks:
Innovation
Pursuing competitive advantage through meaningful and unique innovations favors an organic structuring.

Cost minimization
Focusing on tightly controlling costs requires a mechanistic structure for the organization.

 Strategy and Structure

Achievement of strategic goals is facilitated by changes in organizational structure that accommodate and support change.

Size and Structure

As an organization grows larger, its structure tends to change from organic to mechanistic with increased specialization, departmentalization, centralization, and rules and regulations.

 Technology and Structure

Organizations adapt their structures to their technology.
Routine technology = mechanistic organizations Non-routine technology = organic organizations

 Environmental Uncertainty and Structure (Burns and Stalker)

Mechanistic organizational structures tend to be most effective in stable and simple environments. The flexibility of organic organizational structures is better suited for dynamic and complex environments.

Common Organizational Designs

Traditional Designs
Simple structure
Low departmentalization, wide spans of control, centralized authority, little formalization

Functional structure
Departmentalization by function
Operations, finance, human resources, and product research and development

Divisional structure
Composed of separate business units or divisions with limited autonomy under the coordination and control the parent corporation.

Strengths and Weaknesses of Common Traditional Organizational Designs

A simple structure

A functional structure

A divisional structure

 Contemporary Organizational Designs

Team structures
The entire organization is made up of work groups or self-managed teams of empowered employees.

Matrix and project structures

Specialists for different functional departments are assigned to work on projects led by project managers. Matrix participants have two managers.

A Matrix Organization in an Aerospace Firm

- Boundaryless Organization
An flexible and unstructured organizational design that is intended to break down external barriers between the organization and its customers and suppliers. Removes internal (horizontal) boundaries:
Eliminates the chain of command Has limitless spans of control Uses empowered teams rather than departments

Eliminates external boundaries:

Uses virtual, network, and modular organizational structures to get closer to stakeholders.

Removing Boundaries
Virtual Organization
An organization that consists of a small core of full-time employees and that temporarily hires specialists to work on opportunities that arise.

Network Organization
A small core organization that outsources its major business functions (e.g., manufacturing) in order to concentrate what it does best.

Modular Organization
A manufacturing organization that uses outside suppliers to provide product components for its final assembly operations.

Other organizational forms?

Hypertext organization (Nonaka and Takeuchi, 1995) The learning Organization (Senge, 1990) .